What is Venture CapitalVenture capital is money provided by professionals who invest alongside management in young, fast-growing companies that have the potential to become significant economic contributors (NVCA). Venture capital is an important source of equity capital for start-up companies. These portfolio companies that receive venture capital are believed to have excellent growth prospects. Start-ups generally do not have access to capital markets because they are private. Venture capital firms are a solution for financing high-risk, but potentially high-reward, businesses. Usually, investors have a say in the management of the company, they can sit on the board of directors and they expect to receive returns 5 to 10 times higher than their investment of up to 50 million dollars (Burk). History of Venture Capital It is important to start with the history of venture capital to see how it developed as well as to show its ups and downs. It was thought to have been developed in the years after World War II, but it can actually be traced back to the Babylonian Code (Gompers) partnerships. These Babylonian partnerships used gold or silver to finance caravans. The conditions were 12 years and 100% profits (Heise). Much later, the first venture capital firm was established in 1946. Karl Compton, president of MIT, along with Georges Doriot, professor at Harvard Business School, formed American Research and Development (ARD). Local business leaders were also involved in the project. During the war, many new technologies were developed along with other MIT innovations. About half of ARD's profits came from its investment in Digital Equipment Company in 1957. The company had invested only $70,000, but its value had grown to $355 million. A decade later, many more venture capital firms were formed. They were all structured as publicly traded closed-end funds, just like the ARD funds. Closed-end mutual funds are mutual funds whose shares must be sold to other investors, instead of being repurchased from the issuing company. In 1958, the first venture capital limited partnership was formed, Draper, Gaither & Anderson. Others quickly followed suit, but limited partnerships remained in the minority through the 1960s and 1970s. The remainder were either closed-end funds or small business investment companies. During these years, the total annual venture capital funds were small and never exceeded middle of paper......try. They are very optimistic about the future of venture capital financing. They say this is due to more investors investing in venture capital, as well as the increase in IPOs (Raffa). Works Cited Bartlett, Joseph. Fundamentals of venture capital. Rowman Publishers, 1999. Burk, James and Richard Lehman. Finance your small business. Éditions Sphinx, 2004. Camp, Justin. Venture capital due diligence. Wiley Inc, 2002. Gompers, Paul and Joshua Lerner. Venture capital cycle. Cambridge: The MIT Press, 2000. Heise, John. “The History of Bronze Age Mesopotamia.” 1996.http://mahan.wonkwang.ac.kr/lecture/ancient/meso/sron/bronze_age.htmlNational Venture Capital Association. 2005. http://nvca.org/Raffa, David. “Pipe dreams and other opportunities on the road to venture capital.” 2004. www.catalyst-law.com/document/237Sherman, Andrew. Raise capital. 2nd ed.